Helping the Kids with Home…Again

Helping the Kids with Home…Again

May 20, 2024

We have noticed quite a few clients are now helping their children with housing. Some are helping with downpayments on homes, some have adult children living with them temporarily, and some are even building ADUs or additions on their own property for their children and their families. These are creative solutions in the face of a rapidly looming problem: the cost of housing. With these creative solutions, however, come fresh challenges that affect family dynamics and child independence. Anticipating these challenges can prevent awkward situations and bring out the best in everyone.

Stepping back for a moment, it is clear why so many families are helping their children. As of March 2024, the typical single family home costs $397,200 (1). The latest report by the US Census Bureau found typical household income was $74,580 (2). Doing some quick math, we realize a typical single family home is 5.3 times the typical household’s income. For perspective, in the 90s a typical family home was about three times household income. With higher interest rates than we have seen in decades, financing is prohibitively expensive for many young people and fledgling families. Many of these young families also have significant student loans that further dampen their cash flow and ability to get approved for a loan.

Done right, creative housing can help everyone involved. We know several families who have adult children living at home, and they love it. To be clear, there are also those who don’t (think of Mathew McConaughey in Failure to Launch). We see a fair share of post-collegiate kids back at home “for a few months until they figure out what their next move is”....and sometimes month turns out to be the wrong unit of measurement.

But wait: that is not the whole story. Some of our clients have adult children at home, and it is not because the kids couldn’t move out on their own. For many of them, their capable child (and sometimes their own young family) is an opportunity for parents to remain connected, split costs, and age in place.

The key appears to be having enough privacy, communication, and respectful upholding of expectations across family members. Mom and Dad can have help nearby, Son and his family enjoy reduced housing (and sometimes childcare) expenses while having young kids–precisely when they need it most. If personalities don’t clash, relationships are solid, and expectations are upheld across the board, it can work great.

We have a fair number of clients who would also probably lose their minds if they had to share housing with their parents or kids. Imagine that. Still, they want to help and have found other methods that allow greater freedom and space. Some clients have rentals they have allowed their children’s families to stay in for a reduced rate, or even for free. This goes both ways–some of our younger clients have spaces for parents who wanted to downsize, are widowed, or didn’t properly prepare for retirement. Again, these can work well.

There are also some situations to anticipate. Money can be a sticky, difficult thing to discuss with family members, like how much to pay to stay. Most expect a deal because of the family dynamic, which is fine, but it needs to be fair for everyone. It needs to be sustainable. And unlike other tenants, who one might evict in extreme circumstances, doing so with family is a particularly difficult prospect, emotionally and logistically. Be very, very careful with what you say yes to: the timeline and staying power might be more than you originally bargained for.

In a similar vein, building an ADU on a larger property could be a hybrid of the other two choices (“Close, but not too close,” one of my clients joked). You simultaneously could increase the value of a property while helping your child, if done right.

Solutions aside, there are some common concerns to anticipate:

  1. Fairness: beyond being fair between you and the child you are helping is your relationship with any other children. Some clients confess that they worry about being fair to their other children when they help one of them but not the other(s). Some will set the expectation, saying “This is an advance on the inheritance I was going to leave you one day.” Others will gift money to the other children at the same time to try and keep things fair. Just be careful not to break the bank in the process!
  2. Leaving the bank open: be wary about simply helping out with the rent or mortgage. Especially for a child who is struggling, it can be tempting to help them. But if they lack the financial habits or means they need to stay on track, it can be akin to throwing money in the hole of a sinking ship. Moreover, it can also open the door to helping again…and again…and again. Be very careful to set expectations. Loans can sometimes fall in the same category–and there is typically less recourse with an informal loan to your son or daughter.
  3. Ownership: if you own a property that your child lives in, it can work great for now. But if you pass away, be sure your estate plan is prepared properly. It can be a difficult situation if three children inherit a property one child lives in, and that child doesn’t have the financial wherewithal or liquidity to afford buying the others out. Try to think long term with housing plans. You may need to retitle a property, place property in trust, refinance, or otherwise prepare to ensure your wishes and intended property use remains in place.

By the same token, if you own outright or carry a mortgage, remember that you are ultimately on the hook for payments, property taxes, and insurance–no matter what you said in your backyard to your daughter about splitting costs. Occasionally we have clients who struggle when their children lose a job, go through a divorce, or otherwise can’t hold up their end of the financial bargain. Again, think ahead to what could go wrong.

Despite the challenges and what-ifs, we have seen many clients live better lives and help their families with these creative solutions. In a time where houses are expensive, people still need to proceed with their lives. Reimagining how and where you and your family might live could enrich everyone’s experience, allow early retirement, provide relief to those you care about. Approach it with both eyes open, and don’t hesitate to reach out to us. We love to talk through these scenarios with you.

 

  1. https://fred.stlouisfed.org/series/HSFMEDUSM052N
  2. https://www.census.gov/library/publications/2023/demo/p60-279.html  

 

 

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